ARC Group Worldwide (ARCW) Launches 3D Printing Division

Brean Capital states shares could be valued at $45-$50 as a result of new 3D printing division, according to The Fly on The Wall.

ARC Group Worldwide (ARCW), the world's largest metal injection molding (MIM) company, has been making strong moves into the 3D printing industry of late. Last week the company announced the addition of world-renowned 3D printing expert Todd Grimm to their Board of Directors.

ARC Group Chairman and CEO, Jason Young, stated:

"We are honored to have Todd join our board. As one of the leading experts in 3D printing with over 20 years of experience with additive manufacturing, we look forward to Todd's guidance as we more aggressively pursue our 3D printing efforts."

Then this week the company launched their new 3D printing division, “3D Material Technologies”.

CEO Jason Young:

“We are excited to launch 3D Material Technologies. 3D printing is complementary to our core manufacturing capabilities. As such, we believe 3DMT is well positioned to significantly grow in this market segment, while responding to our customer’s needs in reducing development cycle time. We are excited about building this effort and providing new products and services to our customers.”

ARCW sports impressive growth. As of their fourth quarter and fy 2013 report from October,

Fourth quarter net revenue grew 153.7% over fourth quarter of the prior year

Full fiscal year net revenue grew 125.3% over prior year results

Fourth quarter adjusted earnings of $1.7 million and full fiscal year adjusted earnings of $4.7 million

Fourth quarter adjusted EPS was $0.30 and full fiscal year adjusted EPS was $0.85

Full-year adjusted EBITDA of $10.1 million

Full year cash flow from operations was $7.4 million, up from $6.2 million for the prior year

This growth continued into Q1 of fy 2014, with record earnings of .34/share announced on Nov. 13.

ARCW’s acceleration into additive manufacturing and rapid prototyping should drive margins higher as cycle time and costs are both reduced. As the world’s largest metal injection molding company, ARC Group Worldwide has an established customer base with which to rapidly grow higher margin 3D printing and rapid prototyping sales. ARCW’s ttm profit and operating margins stand at 6% and 9.7% respectively and expansion into rapid prototyping should improve margins into the double digits going forward. Proto Labs Inc. (PRLB), as a rapid prototyping pure play, has ttm profit margins of 21.7% and operating margins of 31.2%.

ARCW has a ttm PE of 28 (based on share price of $24). With the company’s changing business model, the addition of a world-renowned 3D printing industry expert Todd Grimm to the team, recent insider buying and a corporate share buyback plan, I believe shares are undervalued.

Disclosure: I am long shares of ARCW.